The Supreme Court on Monday dismissed the special leave petition filed by Bank of Baroda(BoB) against the February 10 order of the Calcutta High Court, which had directed the Reserve Bank of India to consider taking steps against the BoB, including cancellation of its license, for not honouring its commitments on an unconditional bank guarantee.
Though the SC dismissed the BoB's appeal, it has granted liberty to the Reserve Bank of India to take such action as necessary, in modification of the peremptory directions of the Calcutta HC.
"However, it shall be open to the Reserve Bank of India to take such action as may be necessary in the facts and circumstances of the case, in the modification of the direction of the High Court as contained in page 4 of the impugned Order", ordered a bench comprising Justices Hrishikesh Roy and Aniruddha Bose.
This means that the compulsory tone of the the Calcutta HC direction has been diluted by the SC. The top court has now left the matter to the discretion of the RBI.
The issue arose out of a writ petition filed in the Calcutta HC by Indian Oil Corporation Ltd (IOCL) seeking to invoke the bank guarantee furnished by BoB on behalf of one company named Simplex Projects Ltd.
As per IOCL, the bank guarantee was invoked after Simplex failed to live up to its obligations under the contract. However, IOCL contended, the bank stalled the immediate payment of the unconditional bank guarantee, let alone seeking extra time, as in this case.
IOCL claimed that in the interregnum, the bank informed Simplex regarding invocation of the bank guarantee pursuant to which Simplex promptly instituted proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court, by virtue of the arbitration agreement contained in the matrix contract between IOCL and Simplex.
It further submitted that the Delhi High Court also observed that the bank guarantee was unconditional and payment thereunder could not be avoided once the guarantee was invoked. Nevertheless, the bank has refused to release the payment in terms of the unconditional guarantee on the ground that the money may not have been made available by Simplex to the bank.
In this backdrop, IOCL argued that considering the conduct of the Bank of Baroda, an appropriate order should be passed to revoke its license, since it had acted in a manner unbecoming of a bank, a nationalized bank at that.
Concurring with the submissions, the division bench of HC, comprising Justice Sanjib Banerjee and Justice Kausik Chanda, directed :
"Considering the conduct of the appellants, the Reserve Bank of India should consider what appropriate steps may be taken against the Bank of Baroda, including revoking its licence or the authority to carry on banking business, if necessary."
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